Thursday, March 30, 2017

Revisiting the Carrier Plant

Bloomberg goes back to follow up on what currently looks like the high point of the Trump era (which actually occurred before the inauguration):

HVAC makers have left the U.S. for the same reason countless other
businesses have: cheaper labor. Carrier’s unionized workers in Indy are
paid, on average, about $23 an hour (though more recent hires earn $17).
Their Mexican counterparts earn an hourly rate of $3. Absenteeism and
turnover in Indiana are considerably higher than at the company’s
Monterrey operations, Hayes says. He told the Council on Foreign
Relations breakfast that his Mexican rooftop AC plant has “probably one
of the best-performing workforces that we have around the globe.”
Which
isn’t to say that Carrier’s Indy workers, represented by United
Steelworkers Local 1999, aren’t productive. They produce 10,000 furnace
or fan-coil units a day, or one every seven seconds. According to a 1993
Hartford Courantstory,
the Indianapolis plant back then produced 500,000 furnaces a year with
1,500 workers. Today it can make four times as many furnaces and fan
coils with a slightly smaller workforce—and you don’t have to explain
the significance of that to the members of Local 1999. Studies show that
50 percent to 90 percent of job losses at American factories are
attributable to productivity gains linked to automation. Except for a
blip during the 2008 recession, industrial production in the U.S. has
been on a fairly steady rise for decades. Even if Trump struck three Carrier deals a day for the rest of his term, he wouldn’t recoup even half the 7 million American manufacturing jobs lost since that employment peaked in 1979.

Here is a gem that should be repeated anytime some businessperson trots out the "job-killing regulations" line:

The union offered concessions
amounting to a third of the $65 million a year Carrier expected to save
by moving. Indiana then-Governor Mike Pence and Democratic Senator Joe
Donnelly met separately with Carrier and UTC executives. Pence told RTV6
of Indianapolis that the “rising tide of red tape” in Washington made
it impossible for Carrier to keep the plant running.
Donnelly says
he asked Carrier executive Nelson and Robert McDonough, who runs UTC’s
Climate, Controls & Security division, to cite one regulation that
figured in the decision. “They couldn’t,” he says. The executives did
confirm that furnaces sent to the U.S. from Mexico would have to comply
with the same rules. The company later told the union that regulatory
costs didn’t figure into expected savings from the move.
“This is
about Carrier chasing wages at $3 an hour,” Donnelly says. “They put
together a $16 billion stock buyback and just went wherever they could
to try to pick up a few extra pennies.”

So what was the outcome of the "deal"? This:

Carrier struck a deal with the Indiana Economic Development Corp.,
a public-private agency chaired at the time by Pence. UTC had declined a
similar arrangement in 2014 because, in part, it would have required
the plant to add workers. According to the current plan, Carrier will
receive up to $7 million in state tax credits and training grants over
10 years—about $1,000 per worker per year, a pittance for UTC, which
offers to underwrite four years of college education for any employee.
UTC
also pledged to spend $16 million on plant upgrades, including
automation. That should make the plant more productive, which in turn
could lessen the need to seek dirt-cheap wages. But technology tends to
shrink payrolls, and that’s likely to happen at Carrier. “We will take a
lot of those jobs that today require very low skill and … eliminate
those jobs through automation,” Hayes says...He offers little comfort to the sorts of workers whose jobs he
reluctantly preserved. “If you have a low-skilled job, they’re not safe
no matter where you are,” he says. “The forces of globalization are not
going to slow down.”
That’s painfully clear in Indiana. Not far
from Carrier, Rexnord LLC is closing a bearings plant and shipping
production to Mexico. Trump tweeted about it in December: “This is
happening all over our country. No more!” Rexnord’s 350 workers are
expected to be gone by summer. Elsewhere in the state, auto parts
supplier CTS Corp. in Elkhart is sending production to Asia and Mexico,
cutting 230 jobs. Welbilt Inc. closed its Sellersburg beverage systems
factory in January and sent production to Mexico, eliminating more than
70 jobs. Harman Professional Solutions shifted some operations in
Elkhart to Mexico, killing 125 jobs.
Layoffs at UTC’s Huntington
plant began recently. The facility will be closed by early 2018. The
Carrier fan-coil lines and related jobs will be gone by the end of this
year.

Unfortunately, I don't think anything, especially a blowhard moron jackass President, can staunch the flow of job losses to low wage countries and to automation. The truth is, we have locked ourselves into an unsustainable, resource-intensive way-of-life that we just can't afford to maintain. It is just too easy for businesses to use wage arbitrage to make products in low-wage countries and sell them in rich countries. It doesn't matter whether Trump's excise taxes or Paul Ryan's border-adjustment tax were to go into effect, because each would pummel the millions of Americans in low-paying service jobs, while barely assisting the approximately 9% of Americans who work in manufacturing. The only thing that could maybe revitalize American manufacturing would be for investors to give up on squeezing more and more profits out of American companies, and settle for allowing workers to gain a much greater share of productivity gains. You may as well wait for Donald Trump to show humility.